While Filipinos took a little longer to adopt the cashless payment trend, the climate is drastically changing in the wake of the COVID-19 pandemic. As more and more Filipinos rely on digital services to avoid contracting the coronavirus, the use of credit cards and e-payment solutions is also increasing exponentially. A recent study by Visa revealed that 7 in 10 Filipinos intend to continue using cashless payment methods after the pandemic is over, and 40 percent of people now prefer using credit cards and other cashless methods when paying for products and services instead of cash.
Perhaps, just like many others, you also discovered the practicality and ease of using your credit cards just recently. But while this financial tool makes payments more convenient, using it irresponsibly can lead you into debt and other financial troubles. Make sure that you are utilizing your credit cards in your favor by learning about the worst and best ways to use them. In this article, we’ll take a closer look at some of these.
Using the Cash Advance Feature
A credit card cash advance allows you to withdraw cash from your credit card account. You’re basically borrowing cash against your credit card. Getting cash from your credit card may seem like the easiest way to borrow money, but doing so can bring you more financial problems. Are you aware that cash advances come with expensive fees, higher interest rates, and service charges?
Every time you withdraw money using your credit card, you are automatically obliged to pay a fixed transaction fee that ranges from PHP300 to PHP600 or 3 to 5 percent of the amount you owed, whichever is higher. You must also pay an additional service fee of PHP500 If you make an over-the-counter withdrawal.
On top of the said fees, you will also be charged a higher interest rate than ordinary purchases. What’s worse is that there is usually no grace period on cash advances. Your borrowed money starts accumulating interest from the time of withdrawal until you pay the entire amount.
Besides its high cost, getting a cash advance can also impact your credit score negatively. Should you need to borrow money in the future, lenders will most likely regard your history of credit card cash withdrawals as a sign of fiscal irresponsibility, which can hurt your chances of securing a loan.
What You Can Do Instead:
Forget about your credit card’s cash advance feature even if you are short on cash. Make it a habit to save money so that you have extra funds to help you get by during emergencies and rough times. Start small by cutting back on unnecessary expenses.
You can also open a Simplé Savings account at Robinsons Bank to keep your money safe while earning interest. In case your emergency fund is not enough for your unforeseen expense, try applying for a personal loan since its interest rate is much lower than cash advances.
Spending on Things You Cannot Afford
It is easy to splurge on luxurious items when using a credit card because you do not have to pay for the purchases immediately. The reality that you are spending your hard-earned money does not instantly sink in because your brain processes it as “just using a card.” You do not “feel” the transaction in the same way as when you are paying in cash.
Although the payment seems unreal, you must be cautious and smart enough to realize that nothing is free with credit cards. The bank may pay for your purchases initially, but you have to settle the bill at a later date. They will even charge you interest and fees if you fail to pay on time.
In other words, you accumulate utang on each swipe of the card. And if you continuously overspend, you will end up burdened with debt. When this happens, not even the fancy bag or signature clothes you have in your closet can comfort you.
What You Can Do Instead:
To avoid buying things you cannot afford, you should always ask yourself this question before using your credit card: “Can I pay for it in cash?” If your answer is no, it means that it is beyond your means, so you better think carefully about whether that beautiful shiny thing is worth getting into financial trouble.
If you find it challenging to control your spending habits, you should probably replace your card with Robinsons Bank DOS Mastercard. This card is unlike many others since it automatically converts all your purchases to a two-month installment without additional interest. For instance, if you buy a new purse worth PHP 2,000 using this card, you will be billed PHP1,000 initially and the other PHP 1,000 will be billed the following month. Staying within your budget may become painless with this credit card feature.
Making Minimum Payment
If you are going through a financial emergency, making a minimum payment can help keep you afloat for a few months. But if you make it a habit, you may end up in deep financial woes.
Perhaps you will justify by saying that paying the minimum due is much better than missing a payment and incurring a fee for late payment. But that is only true in theory since this routine will cost you more over time.
If you only settle the minimum amount, you are essentially leaving a balance that will be carried over to your succeeding bill. Do this for several months, and your credit card balance will balloon to the point that you are paying your credit card bill monthly without making a dent in the amount you owe the bank.
In addition, your interest charges will continue to increase. And if you keep using your card without settling your outstanding dues, it will be much harder for you to recover financially.
What You Can Do Instead:
Make it a practice to pay your credit card bill in full. Make sure that you can settle your dues by taking control of your spending habits. Set a cap on how much you can charge every month based on your budget. Take note of your every purchase, and stop using your card once you reach your limit.
Keeping Your Credit Card Statements Without Reading Them
Many Filipinos merely give their credit card statements a quick peek before keeping them. If you tend to do the same, you are making a huge mistake. Reviewing and monitoring your credit card transactions is a smart financial practice as it offers plenty of advantages.
For one, it makes it easier for you to stay on top of your spending. You can look for opportunities to reduce your expenses as you go through each transaction. Perhaps a subscription to a streaming platform or a wellness mobile app that you are not using in years.
You can also detect billing issues if you make it a habit to read your credit card statements. Remember that mistakes can happen even in the digital era. If you notice billing errors, then you can readily request a refund or a correction. If you discover unauthorized charges, then you can also alert your bank to report potential fraudulent activity.
Ultimately, you are more aware and in control of your financial status if you scrutinize your card balance and payment information. Keep in mind that when you know better, you do better.
What You Can Do Instead:
Start tracking your credit card spending by jotting down the date and amount of every purchase in a small notebook. You can also download an app for such a purpose, such as Simple Expense Note or Spendee.
Set aside a few minutes of your time each month to review your credit card statement. Use your expenditures log to verify the transactions on your bill. If you see some discrepancies, be sure to contact your bank as soon as possible to resolve the issue.
Not Using Your Credit Card
Perhaps you are unaware that one of the worst ways to use your credit card is by not using it at all. While you can avoid overspending by keeping your card tucked away neatly, you are opening yourself to a few risks if you continue to do so.
You can become a victim of a fraudulent activity that you are completely unaware of when you leave your card unused and unchecked. How can you immediately address such a problem if you no longer check your statements? Note that the longer you overlook using your card and reviewing your account, the more trouble you will be in if a scammer is using your card illegally.
Not using your credit card for several months can also lead to its cancellation, which can hurt your credit score. Aside from lowering the amount of credit that you can take advantage of, the closure or termination of your card will also reduce the average age of your account. Lenders may consider this negatively such that it would work against your favor should you apply for a loan in the future.
What You Can Do Instead:
Keep your credit card active by using it to purchase big-ticket items like appliances and electronics since most stores usually offer them at zero percent interest. You can also use your card to pay for your online purchases instead of opting for the cash-on-delivery (COD) transaction method.
Another smart way to make your credit card work for you is by opting for one with a cashback feature like Robinsons Cashback Credit Card. This type of card allows you to enjoy a 3 percent rebate at Robinsons stores and a 1 percent rebate at other merchants. By using this type of card, shopping becomes a rewarding experience—literally!
A credit card is a financial tool to make your life easier and more convenient. But, just like any other financial instrument, you need to use it wisely so that it can serve its beneficial purpose. Reflect on the information above so that you can maximize the use of this useful bank product.